Removing The Last Governor: Core Software Pricing

This being near the July 4th holiday in America, which is a significant time for me and my life with The Four Hundred, I am going to ask your indulgence and tell you a story or two.

When I first moved to New York City way back in December 1988, it was not the first time that I had encountered a recession. But it was an important one that changed my life and, I like to think, yours.

My parents were the grandchildren of farmers, and their parents worked in the factories of upstate rural New Jersey – there are parts of the Garden State that are lovely, but economically challenged, just like elsewhere in these United States, and I am proud to be born in Newton, the seat of Sussex County, a place my family, in its many branches over many generations, helped settle for hundreds of years.

Recessions are a big deal out there in those rolling hills. The recessions of 1960-1961, 1969-1970, and 1973-1975 hit pretty hard. I wasn’t born yet when the first one mentioned there hit, and I was a young child when the second one hit. My parents were teenagers and then young adults entering the workforce after high school for the first two, and they talked of it sometimes.

The third recession I remember clearly, starting with the lines at gas stations thanks to the oil embargo, which was a big deal for everyone I knew because many people who had jobs in the 1970s had to truck from the mountains of Sussex down to the more central counties where the jobs were. So a gas price hike and heating bill rises hit doubly hard. I quietly watched my parents struggle and tried to be helpful. My analysis of price/performance started early, and I have held jobs since I was very young to help ease their burdens and to give myself economic freedom and, frankly, have something constructive to do. Dad eventually lost one job and came home after getting his last check – and just months after my parents had just bought a new house with some land – with a rototiller. A Troy-Built Horse, one of the finest machines ever made and, not oddly enough at all, one that is no longer made and one that I currently own that I found for sale used, in nearly mint condition, down in my new home of rural and western North Carolina. Mom and Dad taught me how to garden, and we had apple and pear trees, and we ate and ate well. I raised chickens on my own nickel and gave the house meat and eggs.

It is not a coincidence that after I left New York, the first thing I did was build a compost bin:

The second thing I did was build a chicken coop. Here it is:

Yes, my birds have a bird feeder on a tower. It’s a long story. . . . Look at this crazy shot from last fall:

There is absolutely no doctoring of any kind on that photo. It was a double rainbow with the sky churning behind it and the leaves flaring with autumn.

The third thing I did was get a tiller to see what this soil had to offer. It turns out, not much, which is why I started with the compost bin and the chicken manure. Here is my faithful Horse:

The fourth thing I did was put in some fruit trees – apples and pears, of course. Here is the beginning of my orchard:

There are five pear trees and nine apple trees, and all of them were bought at extreme discount after a bad freezing rain here in Boone, and I revived them all with some tender loving care. (OK, so I was guessing they would live based on the springiness of the limbs and the green still in the bark. Price/performance is a way of life.)

I was in high school during the fourth recession I know something about, back in 1980-1982, and I benefitted to a certain extent from a good economy through my college years. I was working across the street from a Merrill Lynch office, running a parking garage, when the big crash hit Wall Street in October 1987 – Black Monday. I knew some of the people who worked there, and as they left work, the hair stood up on the back of my neck. The official start of that recession is July 1990, but I entered the workforce full time after graduating from college, moving to New York in late 1988 as I said, and I can tell you, that economic downdraft was already well underway in The Big Apple when I arrived. The jobs were pretty thin on the ground for writers with some but not a lot of experience, but I took one as a flack at Columbia University’s engineering school (a place where my children have taken classes from their high school which is three blocks north). I was hired the day that George Bush Senior took the oath of office, and I remember watching it just after my job interview and wondering just what the economy might hold. The AS/400 was seven months old, and I knew that because my best friend’s uncle was an RPG programmer, but I didn’t know what this would mean. Yet.

The idea of taking the job at Columbia University was to get a paycheck and then to also take advantage of the free tuition that the school offered to employees, and to attend the Journalism School and get a proper education on how to do this job. I wanted to work for the Science section of the New York Times or Scientific American, because writing about lots of different things was the best way to learn for me and I have been doing this since I was a child. Yeah, so no surprise: I was the kid who in fourth grade who started doing extra book reports because I loved drawing the illustrations and showing that I learned something.

Five months later, the recession was in full swing and Columbia swung the axe. Down I went, and so went that plan. I looked around for jobs, and once again, they were pretty terrible. I was living in Harlem, had no idea how I was going to pay the rent or eat, student loans were coming online in a month, and I did what I always do when I need to think something through: I took a long walk. And I ended up in the middle of the span of the George Washington Bridge, looking out over New York harbor and the giant man-made crystal that is midtown Manhattan, and I thought to myself, Computers. I think that is where the action is. I turned down the associate editor job at Plastics Today and, as I have done many times in my life, trusted myself to the ebb and flow of the universe. (I wanted the job at Scientific American that I interviewed for, but they didn’t offer it to me.)

The very next day an ad ran in the Want Ads – remember those? – of the New York Times, with a small publishing company looking for a technical editor in a new publication they were launching. I responded to the ad, and showed up for the interview all clean cut in my gray wool suit with my attaché case – I don’t know what I was thinking, maybe I always wanted to be on Wall Street? – and Hesh Wiener, my mentor, gave me one of the strangest job interviews – well, the last job interview – of my life. Finding people who can write and who can also understand technical material and economic concepts is not easy, and Hesh asked me a lot of weird questions. One of them was, “Tell me how many gas stations there are in the United States, and do the math out loud and explain as you go.”

I had a crazy physics professor, at an 8 a.m. class that went on for two semesters, who would toss a piece of chalk into the audience each day and if you caught it – or it hit you – you had to come up to the front of the room and walk through the solutions to the problem sets, out loud, for the day. So I did my math on the gas station problem out loud and realized that with around 90 million families, filling up once a week or so on average, there were probably only about 90,000 gas stations. He asked me why manhole covers are round. (Because square ones can turn on an edge and fall in on whoever is down the hole.) And then he asked me this: “If a chicken and a half can lay an egg and a half in a day in a half, how many pancakes does it take to shingle the roof of a doghouse?”

I raised my eyebrow and laughed and said, “All of them.”

Then he told me to go clean the fish tank. So I took off my suit jacket, laughing, and rolled up my sleeves, cleaned his disgusting fish tank. We had some coffee and he told me a lot about the publishing business, and how Technology News Of America, based in the chi-chi neighborhood of Soho, had a niche business selling strategic and tactical information about mainframes and other high end computers like the Cray supercomputers I had read about, and that there was this new machine called The Application System/400 that had been announced the prior June and they thought this machine was too complex for the customer base and the economics so different that there was a chance to create a lower cost publication with a broader market that could help people figure out how to get the most out of the money they spent on the machines. Hesh went trout fishing in Montana for the July 4th holiday, and he offered me the job before he left; I started my first day when he returned ten days later.

What an education this has been, and selling this publication into the mouth of a recession was exactly the right thing to do. We helped people save shedloads of money, and irked the hell out of IBM. We have been doing this a long time now, starting year 29 this week, in fact. First, I want to say thank you. Second, I wanted to say sorry (not!) for all the money I helped AS/400 shops not give Big Blue over the years. (Yes, a memory upgrade or a storage I/O still often offers better bang for the buck than a processor upgrade.) We have been proper gadflies about helping customers get the most value from the least amount of dollars, and it is the thing I am most proud of; the second is the breadth of technical and news coverage we have offered over these nearly three full decades.

Which brings me, finally, to my point. I want to say I know a thing or two about markets – the broader IT market, but the AS/400 one as well – and I am continually perplexed that IBM does not understand the concept of elasticity. Unix, Windows Server, and Linux, each in their turn, created a broadening market by lowering the cost per unit of computing over time, but as we all know, Big Blue stopped doing that with its IBM i midrange a long time ago. It shows a kind of cynicism that is self-fulfilling. If you make a system expensive, then people will use it begrudgingly and sparingly. The AS/400 took off because it computed like a System/38, which cost a lot more than a 3080 or 3090 mainframe of the time, but cost just a bit more than a System/36. Someone understood this way back when, and IBM built up a business with a $14 billion ecosystem in about a decade. I would be surprised if that ecosystem was $1.4 billion today. (That’s still big, mind you, and shows the effect of Moore’s Law over time. The vast expansion of the X86 server market is all that hides the same slide in its figures.)

I don’t like the premium that IBM charges for Power Systems hardware running IBM i or AIX, but I can live with it. I think the P10 OS/400 IBM i software tier has severely hampered the business and the P20 tier makes it all but impossible for IBM to have a large base of large customers. I have thought this for a long time, and if there are things that I could change about this business, it would be for IBM to sell this as a system again, complete with all the software, storage, and what have you, and the revenues and profits be booked together as a separate profit and loss. We could see how profitable the AS/400 business still is.

I think we would all be pleasantly surprised there, when you add all the tools in. And given that, and our desire to see this business grow, the best hope is for expanding workloads on existing systems. And to accomplish that, IBM is going to have to trust in elasticity and sacrifice a little gross margin. The math can be done so the business remains profitable but is expanding, and therefore is healthier over the long haul. IBM has done this on the System z platform to great success, but can’t seem to understand it needs to do the same thing on the Power Systems-IBM i platform, which has one of the worst names in the tech industry. That’s not an identity, it is a ransom note. And, frankly, so is the software licensing as IBM does it now.

There is a simple way to do this and to make performance gains software neutral in the future: I want IBM to shift to per socket pricing, so as customers add more powerful – and more expensive – processors, they don’t pay an incremental software fee on that machine. Keep the P05, P10, and P20 tiers, fine. Make them core neutral. Make it only available on new Power9 systems. Fine. Get them all on new hardware. Pocket the money, rebuild this business. Make companies want to deploy more work on IBM i, rather than less likely to do so. Let them install whatever memory the machine will take, too. I strongly object to a 64 GB or even a 128 GB cap on a Power S812, a Power S814, or a Power S914 machine, and any I/O caps, too, while I am thinking about it. Let customers add the storage they want and take the money.

One last thing: Trevor, I own the copyright and trademark for The Four Hundred. That is why the name stays the same. You don’t mess with success, for one thing, and for a second, the U.S. Patent and Trademark Office has denied any trademarks on any name I have proposed that might be good for the long haul. (I liked Eye On IBM i, and so did you, but the USPTO didn’t and besides, who trusts IBM not to change the name again?) So I have to live with the name The Four Hundred, which I am happy with anyway. The name suggests our heritage, which we are proud of, and we do our fair share of calling the system by its proper – well, official – names in our stories. (It doesn’t have a proper name.) But the publication name is different. Period.

I heard a guy say that AS/400 went away in the last century so I’m pretty sure the AS/400 marked is in fact as close to zero as one can get.

Also there the S814 and S914 servers will go WAAY past 64GB of memory you’ve tied the limit to the hardware rather than the software tier. They’ll also support effectively as much disk as you can hook up to them.

But here’s the real deal. IBM’s pricing isn’t what’s holding back the market, it’s the ISVs that demand insane prices PER VM and full maintenance on each one. Ones that demand FULL back software maintenance to re-instate your support even when you have a legal right to use the software from the original owner. Ones that up the price if your software tier goes up AND if your user quantity goes up!

AND ESPECIALLY the ones who say: “Sorry no the ONLY place we’re supporting the new version of our software is in OUR cloud. Stay on IBM i and POWER SYSTEMS and you’re stuck on this old version forever.